If you’re considering bankruptcy options, you’re probably feeling as if you’ve completely lost control of your debts. Bankruptcy is the right solution for some people who are overwhelmed by debt, but not everyone. When you’re under financial pressure, it’s important to take a deep breath, clear your head, educate yourself and make a conscious decision about the best way forward.
Managing Debts through Bankruptcy Options
The U.S. Bankruptcy Code provides two very different ways for consumers to manage debts.
The Chapter 7 Bankruptcy “Clean Slate”
Chapter 7 bankruptcy allows a debtor to discharge, or legally wipe out, most unsecured debts. People often choose Chapter 7 if they have large medical bills or high credit card debt, but don’t have a lot of assets.
Chapter 7 bankruptcy isn’t available to everyone. People who earn more than the median income for the same size family in their state must pass a “means test”—a calculation intended to determine whether they are able to repay a reasonable portion of their debts.
If you do qualify for and choose Chapter 7 bankruptcy, most unsecured debts can often be wiped out in just a few months.
Chapter 13 Bankruptcy Repayment Plans
Chapter 13 bankruptcy provides a way for those who have large secured debts, high income, or significant assets to manage debt without having to sacrifice property. The heart of a Chapter 13 bankruptcy case is a three to five-year repayment plan. As long as the debtor makes plan payments on time, creditors included in the plan cannot take other action to collect on those past-due balances.
Is Bankruptcy the Right Answer for You?
Determining whether either of these bankruptcy options is the right way for you to manage your debts and regain control of your finances requires a thorough exploration of the options as they apply to your specific circumstances. Some factors to consider include:
- The amount of outstanding debt and whether you could reasonably expect to repay it
- How much income you have, relative to both your debt and your living expense
- Whether you have non-exempt assets that you want to protect
- Whether the circumstance that triggered your financial crisis has passed
An attorney who is well-versed in the various methods for managing, reducing, or eliminating debt can help you determine whether consumer bankruptcy makes sense for you.
Bankruptcy is Not the Only Way to Manage Debt
Although bankruptcy is one of the most commonly-discussed methods for reducing or eliminating debt, it is far from the only possibility. Some additional possibilities you may want to consider if you are struggling with debt include:
- Negotiating directly with creditors: Some creditors recognize that accepting smaller payments or settling for less-than-full-value is better than engaging in drawn-out collection processes that may be unsuccessful. If you have some money to work with, but not enough to cover your obligations, you may be able to reduce some of your debts to a more manageable level through direct negotiation.
- Working with a credit counseling agency: Negotiating with creditors can be contentious and complicated. When a third party such as a non-profit credit counseling agency handles the negotiations, the process may be less stressful and more successful. This type of organization will also have information that isn’t available to you, such as the willingness of a particular creditor to accept partial payment.
- Fighting creditors and debt collectors: Not every debt is legitimate, and even legitimate debts are often blown out of proportion. Creditors and debt collectors may add fees, interest, and other charges not permitted by your contract, or may “re-age” the debt to continue collection efforts beyond the statute of limitations. Even when the debt is valid, debt collectors may break the law in their collection efforts, opening the door for you to sue them for damages.
You are Not at the Mercy of Debt Collectors
No matter what creditors and debt collectors would like you to believe, you are not powerless. You and you alone get to choose how best to manage your debts and that may include bankruptcy options. If that means fighting back against debt collectors who violate the Fair Debt Collection Practices Act (FDCPA) and other consumer protection statutes, contact us.